WHY WOMEN ARE BETTER INVESTORS
BY: PATRICK R. COTE, CFA, CFP®
Over the last few years, several studies from Fidelity, Wells Fargo, the University of California and Hargreaves Lansdown in the UK show that women’s investment returns tend to outperform men’s by anywhere from 0.4% to 0.8% per year.
Men tend to shoot themselves in the foot while investing, while women do not. Several types of behavior tend to favor women investors:
- Men tend to trade more than women, which can lead to lower returns due to the challenge of trying to pick stocks vs. simply investing in the overall index, as well as incurring higher short-term capital gains taxes.
- Men also try to time the market more than women, by being more likely to make large asset allocation shifts between stocks and bonds. Trying to time the market is another behavior that tends to hurt returns over time.
Women need more money in retirement than men in order not to outlive their savings, as on average women tend to live longer than men. A 65-year-old man must provide for himself for 18 years on average in retirement, while a 65-year-old woman must provide for herself for 21 years. Unfortunately, women have on average 37% less in retirement savings than men, which puts women in a more difficult retirement position.
Fortunately, not only are women better investors than men, women tend to save a higher percentage of their salary in their retirement plans at work, 9.0% for women vs. 8.6% for men. Similarly, for investment accounts outside of work (IRAs and brokerage accounts), women add 12.4% to their accounts through additional saving, vs. 11.6% for men.
The trends listed above are leading to a decrease in the gender investing gap. With a gender wage gap of 18%, women start with less potential to save money, since they are earning less. Historically, men were more likely to invest than women, although this gap has now closed to 4% with 56% of men and 52% of women investing in equities. The good investment behavior that we generally see with women will help to reduce that gap!